Energy Commodity Report: February 4, 2011

All prices unless otherwise stated are for the close of February 3.
2012 baseload German power: €52.88/MWh, up 0.80%
2012 CIF ARA Coal: €120.06/t, up 0.90%
Front-month UK natural gas: GBp54.77/therm, up 0.54%
EU emission allowances (EUAs) for December 2011 delivery: €14.69/t, down 1.94%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €11.33/t, down 1.65%
Brent crude oil futures for front-month 2010 delivery: US$101.74/bbl, down 0.0% as of GMT 08:45, February 4
WTI crude oil futures for front-month 2010 delivery: US$90.85/bbl, up 0.1%, as of GMT 08:45 February 4

Latest buzz

After hitting US$103.37/bbl in intraday trading on Thursday, Brent crude appears to have come off the boil, as a stronger US dollar has taken its toll, thanks to comments made by European Central Bank President Jean-Claude Trichet that eurozone interest rates are unlikely to rise soon. Another source of downward pressure for crude came from Genscape, which reported that oil inventories at Cushing, Oklahoma, the delivery point for the WTI contract, have risen to a record high of nearly 41mbbl.

Oil traders are currently awaiting data on US non-farm payrolls for January, which are scheduled to be released at 13:30GMT. General expectations are for an increase of 145,000, too small to prevent a rise in unemployment. However, the snow storms that have affected much of the country could mean a lower-than-expected figure.

During a hearing of the Senate Energy and Natural Resource Committee yesterday, the IEA’s deputy executive director, Richard Jones said that speculation was not a valid reason for the 25% rise in oil prices since September.

“Data on supply-and-demand fundamentals for the fourth quarter of 2010 that has recently become available points more towards a market tightening due to stronger-than-expected demand in key consumers and a concurrent drawdown of commercial oil stocks,” Jones said.

“Reasons for this growth in demand include unseasonal weather patterns and better-than-expected global economic growth,” he added.

The head of the EIA, Richard Newell, told the Senate that there is a one-in-three chance that oil will rise above US$110/bbl by the end of 2011. However, the EIA is predicting that over the next 25 years, US dependence on oil imports will fall due to higher vehicle efficiency and greater use of renewable energy and natural gas.

Meanwhile, Jim Burkhard attributed the run-up in oil prices to a surge in global demand, saying that “The core of what’s happened is the stunning increase in income in GDP in China, India and other emerging markets.” After pointing out that Chinese and Indian GDP rose by 235 and 176%, over the past decade, he said that “Rarely, if ever, have we seen living standards for so many rise so quickly.”

US natural gas futures fell by US¢9.2, or 2.1%, to settle at US$4.337/mBtu after the EIA reported a 189bnft³ withdrawal from storage for the week ended January 28, in line with analysts’ expectations. Traders reacted negatively to the news, given that some were hoping for a withdrawal in excess of 200bnft³, given the cold winter. In addition, the market is becoming increasingly conscious of the fact that the current winter heating season’s days are most definitely numbered. Total gas in storage stood at 2.353tnft³, 0.2% above the five-year average and 2.8% below the level seen this time last year.

Looking ahead, the fact that the current snow storms have forced natural gas operators to shut in wells equivalent to almost 5% of daily nationwide demand, suggests that the EIA may report a larger withdrawal from storage next week. Meteorologists with the Commodity Weather Group are expecting the cold weather to persist into next week, improving the outlook for heating demand.

Over in Europe, the expected reopening of five carbon registries today caused the Dec11 EUA contract to retreat from an intraday high of €15.14/t on Thursday, eventually settling down 1.94% at €14.69/t. Other than the mild decline seen for Brent Crude, the energy complex was considered to be generally supportive, particularly the 0.8% rise in the value of the 2012 German baseload power contract. CERs booked smaller losses than the equivalent EUA contracts, causing the Dec11 and Dec12 CER-EUA spreads to finish the day at -€3.26 and -€4.07, respectively. It is thought that the greater resistance displayed by CERs might be attributable to expectations of lower CER issuance in the weeks ahead, given the record amount of credits issued by the UNFCC in January.